2015 (12) TMI 455 - AT - Income Tax

Disallowance of website registration expenses - revenue v/s capital expenditure - Held that - Just because a particular expenditure may result in an enduring benefit would not make such an expenditure of capital nature and real intent and purpose of the expenditure has to be seen, thus, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals) considering the nature of expenditure as revenue in nature. See CIT Versus INDIAN VISIT. COM PVT. LTD 2008 (9) TMI 8 - DELHI HIGH COURT - Decided in favour of assessee. Disallowance u/s 14A read with Rule 8D - CIT(A)deleted the addition - Held that - We are in agreement with the finding of the ld. Commissioner of Income Tax (Appeals) to the extent that Rule 8D of the Rules is not applicable being the assessment year involved is 2007-08. So far as, reasonableness of addition made u/s 14A of the Act is concerned, in view of the decision from Hon ble jurisdictional High Court in Godrej & Boyce Mfg. Company Ltd. vs CIT (2010 (8) TMI 77 - BOMBAY HIGH COURT) where their lordship while approving the theory of apportioning expenditure between taxable and nontaxable income speaks about reasonable and fair basis to be followed in making the disallowance u/s 14A of the Act, we note that there is uncontroverted finding in para 6.11 of the impugned order that there is no borrowing by the assessee during the year. The Assessing Officer is directed to make the disallowance in the light of the aforesaid decision from Hon ble jurisdictional High Court. Decided in favour of revenue for statistical purposes

Issues Involved:
1. Disallowance of website registration expenses as capital expenditure.
2. Deletion of addition made by disallowing software expenditure.
3. Deletion of addition made by disallowing website development expenses.
4. Deletion of disallowance under section 14A read with Rule 8D of the Income Tax Rules.

Issue-wise Detailed Analysis:

1. Disallowance of Website Registration Expenses as Capital Expenditure:
The Revenue challenged the disallowance of website registration expenses amounting to Rs. 1,09,03,798/- as capital expenditure. The assessee argued that the issue is covered by the decision of the Hon'ble Delhi High Court in the case of CIT vs Indian Visit.com Pvt. Ltd. and DCIT vs M/s Mahindra Reality and INF Developers Ltd. The Tribunal considered the rival submissions and the material on record, noting that the Tribunal had previously dismissed a similar appeal by the Revenue, referencing the Delhi High Court's decision which stated that "just because a particular expenditure may result in an enduring benefit would not make such an expenditure of a capital nature." The Tribunal concluded that the real intent and purpose of the expenditure must be considered, and thus upheld the decision of the Commissioner of Income Tax (Appeals) (CIT(A)), finding no infirmity in their conclusion.

2. Deletion of Addition Made by Disallowing Software Expenditure:
The Revenue contested the deletion of an addition of Rs. 1,75,500/- made by disallowing software expenditure for obtaining MS Office Licence and Marketing Data Management System. The Assessing Officer (A.O.) had treated this expenditure as capital in nature. The CIT(A) deleted the addition, stating that the expenditure on software, though enduring in nature, does not result in the acquisition of any capital asset and merely enhances productivity. The Tribunal upheld the CIT(A)'s decision, referencing the Special Bench decision in Amway Enterprises and the case of CIT vs. Southern Roadways Ltd., concluding that the software expenditure is revenue in nature due to its short lifespan and technological obsolescence.

3. Deletion of Addition Made by Disallowing Website Development Expenses:
The Revenue also contested the deletion of an addition of Rs. 8,02,139/- made by disallowing website development expenses. The A.O. had treated these expenses as capital in nature. The CIT(A) deleted the addition, stating that the expenditure on website development, although enduring in nature, is intended to disseminate information about the assessee and is akin to advertisement expenses. The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's decision in CIT vs. Indian Visit.com P. Ltd., which held that the expenditure on a website is of a revenue nature as it does not result in any accretion to the fixed capital of the assessee.

4. Deletion of Disallowance under Section 14A Read with Rule 8D of the Income Tax Rules:
The Revenue challenged the deletion of a disallowance of Rs. 11,07,00,000/- under section 14A read with Rule 8D. The CIT(A) noted that the provisions of Rule 8D apply only from the assessment year 2008-09 onwards, and thus deleted the disallowance. The Tribunal agreed with the CIT(A)'s finding, referencing the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. vs Deputy CIT, which stated that the provisions of Rule 8D apply only from the assessment year 2008-09. The Tribunal directed the A.O. to make the disallowance in light of the Bombay High Court's decision, which speaks about a reasonable and fair basis for making the disallowance under section 14A, and allowed this ground for statistical purposes, ensuring the assessee is given an opportunity of being heard.

Conclusion:
The Tribunal dismissed the Revenue's appeal regarding the disallowance of website registration expenses and upheld the CIT(A)'s decisions on the deletion of additions made by disallowing software and website development expenses. The Tribunal partially allowed the Revenue's appeal for statistical purposes concerning the disallowance under section 14A, directing the A.O. to reassess the disallowance in light of the Bombay High Court's decision. The order was pronounced in the open court on 12/10/2015.

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